U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Commission File Number 0-24634
TRACK DATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-3181095
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
56 Pine Street
New York, NY 10005
(Address of principal executive offices)
(212) 422-4300
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes /x/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of July 31, 2001 there were
57,869,685 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 2-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See pages 12-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See page 16
PART II. OTHER INFORMATION
See page 17
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
----------- ------------
Unaudited Derived from audited
financial statements
ASSETS
CASH AND EQUIVALENTS $34,327,652 $6,505,756
ACCOUNTS RECEIVABLE-net 1,899,924 1,743,941
DUE FROM CLEARING BROKER 770,512 774,864
MARKETABLE SECURITIES 20,828,295 2,646,348
FIXED ASSETS-net 5,331,981 5,743,303
INVESTMENT IN AFFILIATE - 1,873,958
EXCESS OF COST OVER NET ASSETS ACQUIRED 2,126,787 2,333,699
NET DEFERRED INCOME TAX ASSETS - 450,000
OTHER ASSETS 1,689,917 2,406,932
----------- ----------
TOTAL $66,975,068 $24,478,801
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 3,149,022 $ 3,338,112
Note payable - bank 1,546,637 569,321
Notes payable - other 875,927 836,203
Trading securities sold but not
yet purchased 34,979,401 1,492,484
Capital lease obligation 826,558 1,215,826
Net deferred income tax liabilities 2,229,000 -
Other liabilities 275,445 294,588
----------- -----------
Total liabilities 43,881,990 7,746,534
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $.01 par value;
300,000,000 shares authorized;
issued and outstanding
- 59,230,805 shares in 2001
and 64,453,556 shares in 2000 592,308 644,536
Additional paid-in capital 22,210,824 26,136,695
Accumulated other comprehensive income 4,125,303 675,921
Deficit (3,835,357) (10,724,885)
----------- ------------
Total stockholders' equity 23,093,078 16,732,267
----------- ----------
TOTAL $66,975,068 $24,478,801
=========== ===========
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
------------ -----------
SERVICE FEES AND REVENUE $33,713,749 $25,923,244
------------ -----------
COSTS AND EXPENSES:
Direct operating costs 15,773,627 14,346,044
Selling and administrative expenses 9,898,638 12,275,543
Marketing and advertising 808,655 4,361,546
Gain on sale of investments in affiliate (948,793) -
Gain on marketable securities (988,674) (482,843)
Interest (income) expense - net (122,232) 129,327
----------- ------------
Total 24,421,221 30,629,617
----------- ------------
INCOME (LOSS) BEFORE EQUITY IN NET INCOME
OF AFFILIATE AND INCOME TAXES 9,292,528 (4,706,373)
EQUITY IN NET INCOME OF AFFILIATE 276,000 85,000
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 9,568,528 (4,621,373)
INCOME TAXES 2,679,000 -
----------- ------------
NET INCOME (LOSS) $ 6,889,528 $(4,621,373)
=========== ===========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $.11 $(.07)
==== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 62,332,000 63,522,000
=========== ===========
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
------------ ------------
SERVICE FEES AND REVENUE $16,322,254 $13,032,913
----------- -----------
COSTS AND EXPENSES:
Direct operating costs 7,859,228 7,236,889
Selling and administrative expenses 4,961,412 6,148,727
Marketing and advertising 479,464 2,301,535
Gain on sale of investment in affiliate (393,134) -
(Gain) loss on marketable securities (721,369) 57,028
Interest (income) expense - net (76,774) 84,879
----------- -----------
Total 12,108,827 15,829,058
----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET INCOME
OF AFFILIATE AND INCOME TAXES 4,213,427 (2,796,145)
EQUITY IN NET INCOME OF AFFILIATE - 53,000
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 4,213,427 (2,743,145)
INCOME TAXES 2,679,000 -
----------- -----------
NET INCOME (LOSS) $ 1,534,427 $(2,743,145)
=========== ===========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $.03 $(.04)
==== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 60,779,000 63,668,000
=========== ===========
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001
(Unaudited)
Accumulated
Additional Other
Common Paid-in Comprehensive
Stock Capital Income Deficit
--------- ------------ -------------- ------------
BALANCE,
JANUARY 1, 2001 $644,536 $26,136,695 $ 675,921 $(10,724,885)
Net income 6,889,528
Stock options
and warrants
exercised 731 44,966
Purchase and
retirement of
treasury stock (52,959) (6,270,426)
Tax effect of
stock options
exercised 2,299,589
Unrealized gain
on marketable
securities - net
. of taxes 3,449,382
-------- ----------- ---------- ------------
BALANCE,
JUNE 30, 2001 $592,308 $22,210,824 $4,125,303 $ (3,835,357)
======== =========== ========== ============
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,889,528 $(4,621,373)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,414,780 1,639,731
Deferred taxes 2,679,000 -
Equity in net income of affiliate (276,000) (85,000)
Gain on sale of Innodata common stock (948,793) -
Net gain on other marketable securities (988,674) (482,843)
Net proceeds from marketable securities 23,673,544 -
Changes in operating assets
and liabilities:
Accounts receivable and due from
clearing broker (151,630) (190,300)
Other assets 593,910 (302,554)
Accounts payable and accrued
expenses (189,090) 16,079
Other liabilities 19,150 129,438
---------- ----------
Net cash provided by
(used in) operating
activities 32,715,725 (3,896,822)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (589,091) (572,791)
Proceeds from sale of Innodata
and Edgar Online securities 1,467,819 486,137
Loans from others 30,000 12,237
----------- ----------
Net cash provided by
(used in) investing
activities 908,728 (74,417)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations (512,638) (785,913)
Net proceeds on note payable - bank 977,316 155,163
Net proceeds from notes payable - other 39,724 36,199
Net payments on loans from
employee savings program (35,715) (189,808)
Purchase of treasury stock (6,323,385) (768)
Proceeds from exercise of stock options 47,497 1,268,822
---------- -----------
Net cash (used in)
provided by financing
activities (5,807,201) 483,695
------------ -----------
EFFECT OF EXCHANGE RATE DIFFERENCES ON CASH 4,644 674
----------- -----------
NET INCREASE (DECREASE) IN CASH 27,821,896 (3,486,870)
CASH, BEGINNING OF PERIOD 6,505,756 5,665,833
----------- -----------
CASH, END OF PERIOD $34,327,652 $ 2,178,963
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for:
Interest $ 211,312 $ 206,897
Income taxes 18,849 10,615
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Equipment acquisitions financed by
capital leases $ 123,370 $ 519,215
Investment in private companies
acquired through
issuance of common stock - 469,843
See notes to condensed consolidated financial statements
Track Data Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of June 30, 2001, and the results of operations and of cash flows for the six
months ended June 30, 2001 and 2000. The results of operations for the six
months ended June 30, 2001 are not necessarily indicative of results that may be
expected for any other interim period or for the full year.
These financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 2000 included in
the Company's Annual Report on Form
10-K. The accounting policies used in preparing these financial statements are
the same as those described in the December 31, 2000 financial statements.
2. During the six months ended June 30, 2001, options to purchase 73,130
shares of the Company's common stock were exercised at prices of $.50 to $1.50,
aggregating net proceeds to the Company of $45,697.
3. During the six months ended June 30, 2001, 5,295,881 shares of the
Company's common stock were purchased and retired at a cost of $6,323,385.
4. During the six months ended June 30, 2001, the Company issued options to
purchase an aggregate of 1,186,000 shares of its common stock (1 million to its
Chairman) at an exercise price of $1.50 per share.
5. The Company charges all costs incurred to establish the technological
feasibility of a product or product enhancement to research and development
expense. Research and development expenses were $153,800 and $178,600 for the
six months ended June 30, 2001 and 2000, respectively.
6. Advertising costs, charged to operations when incurred, were $808,655 and
$4,361,546 for the six months ended June 30, 2001 and 2000, respectively.
7. The Company had accounted for its 10% investment in Innodata Corporation
("Innodata"), a publicly traded company, using the equity method until May 7,
2001 when the Company's Chairman and CFO resigned as officers and directors of
Innodata. The Company's investment in Innodata has been accounted for as
available for sale securities since that date. See Note 8.
8. Marketable securities consists of the following:
June 30, December 31,
2001 2000
----------- -------------
Edgar Online - Available for sale
securities - at market $ 2,593,864 $1,135,884
Innodata - Available for sale
securities - at market 6,230,778 -
Trading securities - at market 12,003,653 1,510,464
----------- -----------
$20,828,295 $2,646,348
=========== ==========
Trading securities sold but not
yet purchased - at market $34,979,401 $1,492,484
=========== ===========
The Company owns 712,600 shares of Edgar Online, Inc. ("EOL"), an Internet-based
supplier of business, financial and competitive intelligence derived from U.S.
Securities and Exchange Commission data. The Company carries the investment at
$2,593,864, the market value at June 30, 2001. The difference between the cost
of $9,349 and fair market value of these securities, net of $1,033,806 in
deferred taxes, or $1,550,709, is classified as a component of accumulated other
comprehensive income included in stockholders' equity.
The Company owns 2,022,980 shares of Innodata, a provider of digital content
outsourcing services. The Company carries the investment at $6,230,778, the
market value at June 30, 2001. The difference between the cost of $1,939,788
and fair market value of these securities, net of $1,716,396 in deferred taxes,
or $2,574,594, is classified as a component of accumulated other comprehensive
income included in stockholders' equity.
Trading securities have a long market value of $12,003,653 with a cost of
$13,627,478, or a net unrealized loss of $1,623,825. Securities sold but not
yet purchased, have a short market value of $34,979,401 with a cost of
$36,630,516, or a net unrealized gain of $1,651,115. The Company pledged its
holdings in EOL and Innodata as collateral for its trading accounts. In
addition, the Company's Chairman pledged approximately 15 million shares of his
holdings in the Company's common stock as collateral. The Company is paying its
Chairman at the rate of 2% per annum on the value of the collateral pledged.
The Company paid its Chairman $33,139 for the six months ended June 30, 2001.
The Company received proceeds as of June 30, 2001 of approximately $37 million
from the sale of trading securities sold but not yet purchased. The Company's
arbitrage trading strategy is to fully cover its open positions during each
month with covering option positions that expire in the succeeding month with a
view to generate interest income. The June 30, 2001 positions were closed
during July 2001 and other positions with the same strategy have been
established since that date.
9. During the second quarter, as stated in Note 7, the Company commenced
accounting for its investment in Innodata as available for sale securities.
Management has determined that it is no longer necessary to maintain its income
tax valuation allowance due to the unrealized gain on Innodata securities and
the related deferred tax liability, combined with the Company continuing to
realize profitable operations. As a result, the Company reduced its deferred
tax valuation allowance by $5,727,000, of which $3,427,000 has been considered
in the Company's expected tax rate for 2001. The balance has been recognized as
a component of stockholders' equity related to the tax effect of stock options
exercised. Based on current estimates, the annualized tax rate is expected to
approximate 28%. The tax rate for the second quarter is approximately 64% which
includes the additional charge to recognize the 28% effective rate for the six
month period.
10. Earnings (Loss) Per Share--Basic earnings (loss) per share is based on
the weighted average number of common shares outstanding without consideration
of potential common stock. Diluted earnings (loss) per share is based on the
weighted average number of common and potential dilutive common shares
outstanding. In 2000, such result would be anti-dilutive. There was no effect
on earnings per share in 2001 as a result of potential dilution. The
calculation takes into account the shares that may be issued upon exercise of
stock options, reduced by the shares that may be repurchased with the funds
received from the exercise, based on the average price during the period.
11. Segment Information
The Company is a financial services entity that owns Track Data Securities
Corp., a registered securities broker-dealer and member of the National
Association of Securities Dealers, Inc. The Company provides a proprietary,
fully integrated Internet-based online trading and market data system, myTrack.
It provides real-time financial market data, fundamental research, charting, and
analytical services to institutional and individual investors through dedicated
telecommunication lines and the Internet. It also disseminates news and
third-party database information from more than 100 sources worldwide. The
Company's operations are classified in two business segments: Internet-based
online trading and market data services to the non-professional individual
investor community, and market data services to the institutional professional
investment community.
Segment data includes charges allocating corporate overhead to each segment.
The Company has not disclosed asset information by segment as the information is
not produced internally. Substantially all long-lived assets are located in the
U.S. The Company's business is predominantly in the U.S. Revenues and net
income from international operations are not material. Information concerning
operations in its business segments is as follows:
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
Revenues
Professional Market $ 8,938,846 $ 7,887,123 $17,678,899 $15,608,793
Non-Professional Market 7,383,408 5,145,790 16,034,850 10,314,451
----------- ----------- ----------- -----------
Total $16,322,254 $13,032,913 $33,713,749 $25,923,244
=========== =========== =========== ===========
Income (loss) before
unallocated amounts,
equity in net income
of affiliate and
income taxes:
Professional Market $ 2,883,410 $ 623,545 $ 5,119,056 $ 596,871
Non-Professional Market 693,285 (2,579,609) 3,230,724 (4,309,827)
Unallocated amounts:
Depreciation and
amortization (554,545) (698,174) (1,116,951) (1,346,933)
Gain (loss) on marketable
securities and sale
of investment in
affiliate 1,114,503 (57,028) 1,937,467 482,843
Interest income
(expense), net 76,774 (84,879) 122,232 (129,327)
----------- ----------- ----------- -----------
Income (loss) before
equity in net
income of affiliate
and income taxes 4,213,427 (2,796,145) 9,292,528 (4,706,373)
Equity in net income
of affiliate - 53,000 276,000 85,000
----------- ----------- ----------- -----------
Income (loss) before
taxes $ 4,213,427 $(2,743,145) $ 9,568,528 $(4,621,373)
=========== =========== =========== ===========
12. Broker-Dealer Service Agreement--From April 1999 to August 2000 when the
Company obtained its own broker-dealer license, the Company offered online
trading through its myTrack service utilizing Track Securities Corporation
("TSC") as its broker-dealer. TSC is a broker-dealer owned and operated by a
director of the Company. The Company licensed its myTrack trading system to a
subsidiary of TSC. The Company received $2.25 per trade pursuant to the
agreement, which aggregated $2,041,639 for the six months ended June 30, 2000.
In addition, TSC paid a share of the marketing and advertising costs incurred by
the Company, which aggregated $409,000 during that period. Further, the
director has a five-year consulting agreement with the Company pursuant to which
he is to be paid an annual fee of the greater of $50,000 or 5% of the after-tax
earnings, if any, from trading activities. In 2001 and 2000, the fee was
$25,000. In August 2000, the Company terminated the relationship with TSC,
except for the director consulting agreement, and transferred all the trading
accounts from TSC to the Company's broker-dealer, Track Data Securities Corp.
("TDSC").
13. Transactions with Clearing Broker and Customers--The Company conducts
business through a clearing broker which settles all trades for the Company, on
a fully disclosed basis, on behalf of its customers. The Company earns
commissions as an introducing broker for the transactions of its customers. In
the normal course of business, the Company's customer activities involve the
execution of various customer securities transactions. These activities may
expose the Company to off-balance-sheet risk in the event the customer or other
broker is unable to fulfill its contracted obligations and the Company has to
purchase or sell the financial instrument underlying the contract at a loss.
The Company's customer securities activities are transacted on either a cash or
margin basis. In margin transactions, the clearing broker extends credit to the
Company's customers, subject to various regulatory margin requirements,
collateralized by cash and securities in the customers' accounts. However, the
Company is required to either obtain additional collateral or to sell the
customer's position if such collateral is not forthcoming. The Company is
responsible for any losses on such margin loans, and has agreed to indemnify its
clearing broker for losses that the clearing broker may sustain from the
customer accounts introduced by the Company. The Company has not experienced
any significant losses in 2001.
14. Net Capital Requirements--The SEC, NASD, and various other regulatory
agencies have stringent rules requiring the maintenance of specific levels of
net capital by securities brokers, including the SEC's uniform net capital rule,
which governs TDSC. Net capital is defined as assets minus liabilities, plus
other allowable credits and qualifying subordinated borrowings less mandatory
deductions that result from excluding assets that are not readily convertible
into cash and from valuing other assets, such as a firm's positions in
securities, conservatively. Among these deductions are adjustments in the market
value of securities to reflect the possibility of a market decline prior to
disposition.
As of June 30, 2001, TDSC was required to maintain minimum net capital, in
accordance with SEC rules, of approximately $129,000 and had total net capital
of $471,000, or approximately $342,000 in excess of minimum net capital
requirements.
If TDSC fails to maintain the required net capital it may be subject to
suspension or revocation of registration by the SEC and suspension or expulsion
by the NASD and other regulatory bodies, which ultimately could require TDSC's
liquidation. In addition, a change in the net capital rules, the imposition of
new rules, a specific operating loss, or any unusually large charge against net
capital could limit those operations of TDSC that require the intensive use of
capital and could limit its ability to expand its business.
15. Comprehensive income (loss) is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Net income (loss) $1,534,427 $(2,743,145) $ 6,889,528 $(4,621,373)
Unrealized gain
(loss) on marketable
securities-net of taxes 3,575,084 (1,405,551) 3,449,382 (697,395)
Reclassification adjustment
for gain on marketable
securities - net of taxes - - - (302,000)
---------- ----------- ------------ -----------
Comprehensive income (loss) $5,109,511 $(4,148,696) $10,338,910 $(5,620,768)
========== =========== =========== ===========
16. In July 2001, the Company sold its tdc.com domain name to a European
entity for $1 million. The Company's new domain will be Trackdata.com, which it
already owned. During a transition period the Company will establish its new
corporate website and change its email addresses to the new domain.
17. Effect of Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board approved the issuance of
SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and Other
Intangible Assets." The new standards require that all business combinations
initiated after June 30, 2001 must be accounted for under the purchase method.
In addition, all intangible assets acquired that are obtained through
contractual or legal right, or are capable of being separately sold,
transferred, licensed, rented or exchanged shall be recognized as an asset apart
from goodwill. Goodwill and intangibles with indefinite lives will no longer be
subject to amortization, but will be subject to at least an annual assessment
for impairment by applying a fair value based test.
The Company will continue to amortize goodwill existing at June 30, 2001 under
its current method until December 31, 2001. Thereafter, annual and quarterly
goodwill amortization of $414,000 and $103,000, respectively, will no longer be
recognized. The Company will perform a transitional fair value based impairment
test at March 31, 2002 and if the fair value is less than the recorded value at
January 1, 2002, the Company will record an impairment loss in the March 31,
2002 quarter as a cumulative effect of a change in accounting principle.
Track Data Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months ended June 30, 2001 and 2000
Revenues for the three months ended June 30, 2001 and 2000 were $16,322,000
and $13,033,000, respectively, an increase of 25%. The Company's Professional
Market segment had revenues for the three months ended June 30, 2001 and 2000 of
$8,939,000 and $7,887,000, respectively, an increase of 13% for this segment.
The increase was due to additional desktop market data services, increased
Newsware news services and a price increase that was instituted in the fourth
quarter of 2000. The Company's Non-Professional Market segment had revenues of
$7,383,000 and $5,146,000, respectively, for the three months ended June 30,
2001 and 2000, an increase of 43% for this segment. The revenue increase in
2001 is due principally to myTrack's online trading and market data services.
The Company obtained its own broker-dealer license and its registration in all
of the states by August 2000. Prior thereto, trading revenues include only
revenues from the licensing of its trading system, rather than a full amount of
commissions paid by customers.
Direct operating costs were $7,859,000 for the three months ended June 30,
2001 and $7,237,000 for the similar period in 2000, an increase of 9%. Direct
operating costs as a percentage of revenues were 48% in 2001 and 56% in 2000.
The decrease in 2001 is due principally to the greater revenues recognized after
obtaining the broker-dealer license. Without giving effect to unallocated
depreciation and amortization expense, the Company's Professional Market segment
had $3,203,000 and $4,380,000 of direct costs for the three months ended June
30, 2001 and 2000, respectively. Direct operating costs as a percentage of
revenues for the Professional segment were 36% in 2001 and 56% in 2000. The
decline in dollars and percent in 2001 is due to reduced cost of
telecommunications and increased allocation of the overhead to the
Non-Professional segment. The Company's Non-Professional Market segment had
$4,184,000 and $2,240,000 in direct costs for the three months ended June 30,
2001 and 2000, respectively. Direct operating costs as a percentage of revenues
for the Non-Professional segment were 57% in 2001 and 44% in 2000. The increase
in dollars and percentage is due to the recognition of full commission from the
broker-dealer and all the related costs of clearing and back office expenses.
Direct operating costs include direct payroll, direct telecommunication costs,
computer supplies, depreciation and equipment lease expense. Since August 2000,
when the Company commenced recording the full commissions from customers, direct
costs include costs of clearing, back office payroll and other direct
broker-dealer expenses.
Selling and administrative expenses were $4,961,000 and $6,149,000 in the
2001 and 2000 periods, respectively, a decrease of 19%. Selling and
administrative expenses as a percentage of revenues was 30% in 2001 and 47% in
2000. Without giving effect to unallocated depreciation and amortization
expense, selling and administrative expenses for the Professional Market segment
were $2,780,000 and $2,723,000 in the 2001 and 2000 periods, respectively. For
the Professional Market segment selling and administrative expenses as a
percentage of revenues was 31% in 2001 and 35% in 2000. Selling and
administrative expenses for the Non-Professional segment were $2,099,000 and
$3,343,000 in the 2001 and 2000 periods, respectively, a decrease of 37%. For
the Non-Professional segment selling and administrative expense as a percentage
of revenue was 28% in 2001 and 65% in 2000. The dollar and percentage decreases
in 2001 compared to 2000 was principally due to decreased payroll and related
expenses for myTrack's online trading and market data services combined with
increased revenues from the recognition of full commissions in 2001.
Marketing and advertising costs were $479,000 in 2001 and $2,302,000 in
2000. The substantial majority of these costs were incurred by the
Non-Professional segment of the Company which incurred $406,000 in 2001 and
$2,142,000 in 2000, principally for its myTrack online trading and market data
systems. The decrease in 2001 reflects the Company's decision to spend less on
marketing and advertising during 2001 than in 2000. The Professional Market
segment spent $73,000 in 2001 and $160,000 in 2000.
As a result of the above-mentioned factors, the Professional Market segment
realized $2,883,000 in income before unallocated amounts, equity in net income
of affiliate and income taxes in 2001 compared to $624,000 in 2000. The
Non-Professional Market segment realized income of $693,000 in 2001 compared to
a loss of $2,580,000 in 2000 before unallocated amounts, equity in net income of
affiliate and income taxes.
In 2001 and 2000 the Company realized a gain of approximately $1,115,000
and a loss of approximately $57,000, respectively, on the sale of certain shares
of Edgar Online, Inc., Innodata Corporation and other marketable securities.
As a result of the above mentioned factors, the Company realized income
before equity in net income from an affiliate and income taxes of $4,213,000 in
the 2001 period compared to a loss of $2,796,000 in 2000.
During the second quarter, the Company commenced accounting for its
investment in Innodata as available for sale securities. Management has
determined that it is no longer necessary to maintain its income tax valuation
allowance due to the unrealized gain on Innodata securities and the related
deferred tax liability, combined with the Company continuing to realize
profitable operations. Based on current estimates, the annualized tax rate is
expected to approximate 28% due to the utilization of tax loss carry forwards in
2001. The tax rate for the second quarter is approximately 64% which includes
the additional charge to recognize the 28% effective rate for the six month
period.
The equity in net income from an affiliate, Innodata Corporation, was $-0-
and $53,000 in 2001 and 2000, respectively. The Company had accounted for its
investment in Innodata using the equity method until May 7, 2001 when the
Company's Chairman and its CFO resigned as officers and directors of Innodata.
The Company's investment in Innodata has been accounted for as available for
sale securities since that date.
The Company realized net income of $1,534,000 in 2001 principally from
increased revenues from myTrack's online trading and market data services and a
significant reduction in expenses, including marketing and advertising, compared
to a net loss of $2,743,000 in 2000 principally due to marketing and advertising
of the Company's myTrack service.
Six Months ended June 30, 2001 and 2000
Revenues for the six months ended June 30, 2001 and 2000 were $33,714,000
and $25,923,000, respectively, an increase of 30%. The Company's Professional
Market segment had revenues for the six months ended June 30, 2001 and 2000 of
$17,679,000 and $15,609,000, respectively, an increase of 13% for this segment.
The increase was due to additional desktop market data services, increased
Newsware news services and a price increase that was instituted in the fourth
quarter of 2000. The Company's Non-Professional Market segment had revenues of
$16,035,000 and $10,314,000, respectively, for the six months ended June 30,
2001 and 2000, an increase of 55% for this segment. The revenue increase in
2001 is due principally to myTrack's online trading and market data services.
Direct operating costs were $15,774,000 for the six months ended June 30,
2001 and $14,346,000 for the similar period in 2000, an increase of 10%. Direct
operating costs as a percentage of revenues were 47% in 2001 and 55% in 2000.
The decrease in 2001 is due principally to the greater revenues recognized after
obtaining the broker-dealer license. Without giving effect to unallocated
depreciation and amortization expense, the Company's Professional Market segment
had $6,867,000 and $8,856,000 of direct costs for the six months ended June 30,
2001 and 2000, respectively. Direct operating costs as a percentage of revenues
for the Professional segment were 39% in 2001 and 57% in 2000. The decline in
dollars and percent in 2001 is due to reduced cost of telecommunications and
greater sharing of the overhead by the Non-Professional segment. The Company's
Non-Professional Market segment had $7,961,000 and $4,306,000 in direct costs
for the six months ended June 30, 2001 and 2000, respectively. Direct operating
costs as a percentage of revenues for the Non-Professional segment were 50% in
2001 and 42% in 2000. The increase in dollars and percentage is due to the
recognition of full commission from the broker-dealer and all the related costs
of clearing and back office expenses.
Selling and administrative expenses were $9,899,000 and $12,276,000 in the
2001 and 2000 periods, respectively, a decrease of 19%. Selling and
administrative expenses as a percentage of revenues was 29% in 2001 and 47% in
2000. Without giving effect to unallocated depreciation and amortization
expense, selling and administrative expenses for the Professional Market segment
were $5,611,000 and $5,822,000 in the 2001 and 2000 periods, respectively, a
decrease of 4%. For the Professional Market segment selling and administrative
expenses as a percentage of revenues was 32% in 2001 and 37% in 2000. Selling
and administrative expenses for the Non-Professional segment were $4,116,000 and
$6,290,000 in the 2001 and 2000 periods, respectively, a decrease of 35%. For
the Non-Professional segment selling and administrative expense as a percentage
of revenue was 26% in 2001 and 61% in 2000. The dollar and percentage decreases
in 2001 compared to 2000 was principally due to decreased payroll and related
expenses for myTrack's online trading and market data services combined with
increased revenues from the recognition of full commissions in 2001.
Marketing and advertising costs were $809,000 in 2001 and $4,362,000 in
2000. The substantial majority of these costs were incurred by the
Non-Professional segment of the Company which incurred $727,000 in 2001 and
$4,028,000 in 2000. The Company intends to spend less on marketing and
advertising during 2001 than in 2000. Marketing costs in 2000 are net of
$409,000 received from Track Securities under a licensing agreement. These
costs were principally incurred in connection with the Company's myTrack online
trading and market data systems. The Professional Market segment spent $82,000
in 2001 and $334,000, in 2000.
As a result of the above-mentioned factors, the Professional Market segment
realized $5,119,000 in income before unallocated amounts, equity in net income
of affiliate and income taxes in 2001 compared to $597,000 in 2000. The
Non-Professional Market segment realized income of $3,231,000 in 2001 compared
to a loss of $4,310,000 in 2000 before unallocated amounts, equity in net income
of affiliate and income taxes.
In 2001 and 2000, the Company realized a gain of approximately $1,937,000
and $483,000, respectively, on the sale of certain shares of Edgar Online, Inc.,
Innodata Corporation and other marketable securities.
As a result of the above mentioned factors, the Company realized income
before equity in net income from an affiliate and income taxes of $9,293,000 in
the 2001 period compared to a loss of $4,706,000 in 2000.
During the second quarter, the Company commenced accounting for its
investment in Innodata as available for sale securities. Management has
determined that it is no longer necessary to maintain its income tax valuation
allowance due to the unrealized gain on Innodata securities and the related
deferred tax liability, combined with the Company continuing to realize
profitable operations. Based on current estimates, the annualized tax rate is
expected to approximate 28% due to the utilization of tax loss carry forwards in
2001. The tax at this rate has been provided for the six month period.
The equity in net income from an affiliate, Innodata Corporation, was
$276,000 and $85,000 in 2001 and 2000, respectively. The Company has accounted
for its investment in Innodata using the equity method until May 7, 2001 when
the Company's Chairman and its CFO resigned as officers and directors of
Innodata. The Company's investment in Innodata has been accounted for as
available for sale securities since that date.
The Company realized net income of $6,890,000 in 2001 principally from
increased revenues from myTrack's online trading and market data services and a
significant reduction in expenses, including marketing and advertising, compared
to a net loss of $4,621,000 in 2000 principally due to marketing and advertising
of the Company's myTrack service.
Liquidity and Capital Resources
During the six months ended June 30, 2001 cash provided by operating
activities was $32,716,000 compared to cash used in operating activities of
$3,897,000 in the six months ended June 30, 2000. The increase in 2001 was
primarily due to net proceeds from trading securities sold but not yet purchased
pursuant to an arbitrage trading strategy described below, and to operating
income, compared to an operating loss incurred in 2000. Cash flows provided by
investing activities in 2001 was $909,000 compared to cash used in investing
activities of $74,000 in 2000 principally from significantly increased proceeds
from the sale of Innodata common stock in 2001. Cash flows used in financing
activities in the six months ended June 30, 2001 were $5,807,000 principally
from the purchase of treasury stock, compared to cash flows provided by
financing activities of $484,000 in the 2000 period, including $1,269,000 from
the exercise of stock options and warrants.
The Company has a line of credit with a bank. The line is collateralized by
the assets of the Company and is guaranteed by its Chairman. Interest is charged
at 1.75% above the bank's prime rate and is due on demand. The Company may
borrow up to 80% of eligible accounts receivable and is required to maintain a
compensating balance of 10% of the outstanding loans. At June 30, 2001, the
Company had outstanding borrowings under the line of $1,547,000. The line of
credit is sufficient for the Company's present cash requirements.
The Company received proceeds as of June 30, 2001 of approximately $37
million from the sale of trading securities sold but not yet purchased. The
Company's arbitrage trading strategy is to fully cover its open positions during
each month with covering option positions that expire in the succeeding month
with a view to generate interest income. The June 30, 2001 positions were closed
during July 2001 and other positions with the same strategy have been
established since that date.
The Company substantially reduced its advertising costs in the first six
months of 2001 and does not expect to significantly increase advertising in
2001. The Company may seek additional financing and/or dispose of certain of its
marketable securities to support increased advertising costs, if deemed
appropriate, in the future. There are no major capital expenditures anticipated
beyond the normal replacement of equipment and additional equipment to meet
customer requirements.
Inflation and Seasonality
To date, inflation has not had a significant impact on the Company's
operations. The Company's revenues are not affected by seasonality.
Disclosures in this Form 10-Q contain certain forward-looking statements,
including without limitation, statements concerning the Company's operations,
economic performance and financial condition. These forward-looking statements
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The words "believe," "expect," "anticipate" and
other similar expressions generally identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. These forward-looking statements are based
largely on the Company's current expectations and are subject to a number of
risks and uncertainties, including without limitation, changes in external
market factors, changes in the Company's business or growth strategy or an
inability to execute its strategy due to changes in its industry or the economy
generally, the emergence of new or growing competitors, various other
competitive factors and other risks and uncertainties indicated from time to
time in the Company's filings with the Securities and Exchange Commission.
Actual results could differ materially from the results referred to in the
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the results referred to in the forward-looking statements
contained in this Form 10-Q will in fact occur.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate change market risk with respect to
its credit facility with a financial institution, which is priced based on the
prime rate of interest. At June 30, 2001, $1,547,000 was outstanding under the
credit facility. Changes in the prime interest rate during fiscal 2001 will have
a positive or negative effect on the Company's interest expense. Such exposure
will increase accordingly should the Company maintain higher levels of borrowing
during 2001.
The Company received proceeds as of June 30, 2001 of approximately $37
million from the sale of trading securities sold but not yet purchased. It also
has purchased trading securities with a market value of approximately $12
million. The Company's arbitrage trading strategy is to fully cover its open
positions during each month with covering option positions that expire in the
succeeding month with a view to generate interest income. The June 30, 2001
positions were closed during July 2001 and other positions with the same
strategy have been established since that date.
The Company has investments in marketable securities consisting principally
of its investments in Innodata Corporation and Edgar Online, Inc., both publicly
traded companies listed on Nasdaq. The market value of such securities is
dependent on future market conditions for these companies over which the Company
has little or no control.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities. Not Applicable
Item 3. Defaults upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable
Item 5. Other Information. None
Item 6. (a) Exhibits. None
(b) There were no reports on Form 8-K filed during the second
quarter of 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRACK DATA CORPORATION
Date: 8/10/01 /s/
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Barry Hertz
Chairman of the Board
Chief Executive Officer
Date: 8/10/01 /s/
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Martin Kaye
Executive Vice President,
Principal Financial Officer